Senate Votes To Strengthen S.E.C.'s Hand

By RICHARD A. OPPEL Jr.

Published: April 10, 2003

WASHINGTON, April 9—
The Senate approved legislation today that would strengthen the hand of regulators to attack corporate wrongdoing by giving the Securities and Exchange Commission new powers to punish wayward lawyers, accountants and corporate officers and directors.

The legislation, if approved by the House and signed by President Bush, would enable the agency to impose steep fines on a broad range of wrongdoers without first obtaining approval from a federal judge. It would also make it easier for investigators to subpoena financial records without tipping off the target of their inquiry.

In all, the measure would plug significant holes in the agency's enforcement net that in some respects had left the agency with lesser powers than banking regulators have, despite the sweeping securities law changes passed in the wake of the corporate scandals of the last two years.

Under existing rules, the commission has the power to fine Wall Street firms and investment advisers only through an administrative proceeding at the agency. To obtain fines against accountants, lawyers, corporate officers and directors or anyone else who violates securities laws, the agency must go to federal court. That court action would no longer be necessary under this legislation, although the fines could still be appealed to federal court.

In addition, the legislation would allow the agency to impose substantially bigger fines. Currently, the maximum fines range from $6,500 to $600,000 -- depending on the infraction -- but the legislation sets maximums of $100,000 to $2 million.

For example, securities law violations involving ''fraud, deceit, manipulation or deliberate or reckless disregard of a statutory or regulatory requirement'' could result in fines of up to $500,000 for individuals and $1 million for corporations. Violations that also caused ''substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission'' could bring fines up to $1 million for individuals and $2 million for corporations.

Now, the S.E.C. must get approval from a federal judge to subpoena records secretly. But the legislation passed today would require custodians of subpoenaed financial records to turn the material over to investigators in many cases without disclosing the subpoena to the subject of the inquiry.

In an interview, the bill's co-author, Senator Carl Levin, Democrat of Michigan, said efforts at passing similar legislation had been derailed in the past by Senator Phil Gramm, the Texas Republican who did not run for re-election last year. Mr. Gramm's departure opened the door for the legislation, Mr. Levin said.

''We had hoped to get this passed last year, but what happened was that we were debating it and Gramm ran out the clock on it,'' Mr. Levin said. Mr. Gramm, now vice chairman of UBS Warburg, the investment bank, was unavailable for comment, his assistant said.

Though Democrats no longer have control of the Senate, Mr. Levin said that his provision won support from two moderate Republicans -- Charles E. Grassley of Iowa, chairman of the Senate Finance Committee, and Richard C. Shelby of Alabama, the chairman of the Senate Banking Committee.

''This is a very significant additional tool for the S.E.C.,'' said Mr. Levin, who wrote the provision with Senator Bill Nelson, Democrat of Florida. ''The existing fines are so modest, they are just like traffic tickets in some cases.''

The legislation, which was included in a bill intended to encourage charitable giving that passed the Senate on a 95-to-5 vote this afternoon, may have to be reconciled with legislation from the House, which has been slower to embrace tough remedies for corporate corruption. A spokeswoman for Representative Michael G. Oxley, the Ohio Republican who is chairman of the House Financial Services Committee, declined to comment on the legislation.

But with scandals continuing to wear down investors -- the latest, according to authorities, a $2.5 billion accounting fraud at HealthSouth -- many are reluctant to stand in the way of stricter enforcement of securities laws.

Steve Goldfarb, a spokesman for the American Institute of Certified Public Accountants, said the industry was subject to fines and enforcement under the new federal accounting oversight panel, so ''therefore this is not an issue for us.'' A spokeswoman for the American Bar Association declined to comment.

William H. Donaldson, recently appointed by President Bush to be chairman of the Securities and Exchange Commission, supports the legislation, saying in a letter to Mr. Levin last week that it would ''significantly supplement and strengthen the commission's ongoing enforcement efforts.''